Bottleneckers. William Mellor
organizations, and social blight in the form of crime, poverty, insanity, disease, and urban disorder would come under control.20
At first, Prohibition seemed to work. In the early years, alcohol consumption appeared to decline, and police, social workers, ministers, and journalists reported reductions in problems associated with alcohol abuse.21 But these effects—to the extent that they actually resulted from the Eighteenth Amendment—were fleeting and never entirely successful. The drinking of alcohol continued, especially in large cities, and, as the 1920s progressed, additional negative effects of Prohibition materialized and metastasized—alcohol was illegally produced and distributed, organized crime flourished, bribery and corruption of public officials prevailed, cases of alcohol poisoning arose, and there was a widespread violation of the law. It was particularly this last problem that prompted Rockefeller and others to begin rethinking their support of Prohibition.
Although the “lawlessness” associated with Prohibition is sometimes thought to describe organized crime, it actually refers to the disrespect for all law, and the law’s loss of legitimacy, resulting from the mass disobedience of Prohibition. This lawlessness was aggravated by the looting, rioting, and mass demonstrations that grew out of the Great Depression.22 By 1932, such lawlessness had sealed the fate of Prohibition: John D. Rockefeller Jr. announced his support for repeal, the momentum for which had been building for some time, and other industrialists followed suit. As Rockefeller explained,
In the attempt to bring about total abstinence through prohibition, an evil even greater than intemperance resulted—namely, a nation-wide disrespect for law, with all the attendant abuses that followed in its train. That this intolerable situation should be done away with has seemed to me even more important for the moment than the promotion of temperance.23
On November 16, 1932, the US Senate submitted the Twenty-First Amendment, repealing the Eighteenth Amendment, to state constitutional conventions for ratification. On December 5 of the following year, Utah became the thirty-sixth and deciding state to ratify the amendment, putting repeal into immediate effect.24
In the minds of Rockefeller and others, however, repeal was no solution to the root problem. Rockefeller warned, “As Senator Capper has aptly said, ‘We may repeal Prohibition, but we cannot repeal the Liquor Problem.’ If carefully laid plans of control are not made, the old evils against which prohibition was invoked can easily return.”25 Among other things, the Twenty-First Amendment left such control to the states, but legislators—most of whom had little personal expertise in the complexities of liquor regulation—were ill equipped to navigate the difficult policy and political choices that accompanied it.26 Into this vacuum stepped Rockefeller; this time with a highly influential study that produced model legislation for the states.
Toward Liquor Control,27 a book bankrolled by Rockefeller and written by two of his close and trusted advisors, Raymond Fosdick and Albert Scott, outlined the details of two post-Prohibition systems of regulatory policy: one that the authors greatly preferred and another that they included for pragmatic purposes. The first, which they strongly recommended, was a monopoly approach, in which states would allow individual sales of alcoholic beverages in restaurants and hotels while maintaining a public monopoly on the sale of packaged goods. The second was a licensing system under the auspices of a state board that would ideally be as far removed from politics as possible. Critical to the success of the latter scheme was the control of the number of businesses allowed to sell liquor and the complete elimination of the “tied-house system.”
Tied houses were taverns owned by or under exclusive contracts with alcohol manufacturers.28 Prior to Prohibition, alcohol was not transported across the country as it is today. Instead, there were many breweries and other producers operating in cities and counties that were engaged in aggressive competition to exclusively sell products. They did so through a combination of manufacturer-owned taverns and independent establishments that agreed to sell only a certain brand of beverage. To compel such loyalty, producers sold to taverns on generous credit terms, provided them with equipment and supplies, and paid rebates. This tied-house system was widely believed to be a principal cause of excessive alcohol consumption and related social ills.29 The licensing system described in Toward Liquor Control called for the decoupling and separation of the producer and retailer “tiers” to avoid control or coercion. Newspapers, magazines, and prominent leaders hailed the book, and elected officials turned to it and the model legislation that stemmed from it to create new state alcohol laws. In the months that followed the ratification of the Twenty-First Amendment, states in quick succession adopted alcohol-control policies patterned after those recommended in Toward Liquor Control.30 Today, those same policies largely govern the alcohol industry: seventeen states operate under monopoly control and thirty-three states plus DC operate with licensing systems.31
As part of their licensing systems, states interposed a required third tier—the distributor (or wholesaler)—to place a separation between the manufacturer and retailer tiers. At the outset of the three-tier system, producers could only sell to and retailers could only buy from distributors. Firms in one tier could not hold ownership in companies in another. Nothing of value could be given to induce sales. All businesses across the levels were licensed by the state to operate only in their specific tier.32 In other words, lawmakers created a bottleneck. All alcohol sales flowed through, and only through, distributors—the quintessential “bottleneckers.”
It is these licensing systems that sixty years after their creation ensnared Juanita and David. If manufacturers like them wanted to sell their products to consumers in a given state, they had to find a distributor willing to carry their product. Yet the bottleneck created by the three-tier system provided little incentive for distributors to deal in specialty products from small manufacturers like Juanita and David, particularly if they were out of state and essentially unknown. Instead, the distributors’ preference was, and remains today, for well-known brands that sell easily and in greater volume.33
The effects of the bottleneck were predictable, and, in fact, predicted. The authors of Toward Liquor Control warned,
Any licensing system tends to project the whole question into politics and to keep it there. Indeed, it compels the traffic to be in politics of self-protection. The licensing body becomes a powerful political engine. Every licensee . . . begins to marshal his own political strength to serve his own ends.34
It did not take long for the political process to begin. When Utah voted for the Twenty-First Amendment in December 1933, Congress was in recess, which meant the federal government had no statutory means by which to manage the instantly legal alcohol industry. As an interim measure, President Franklin D. Roosevelt, by executive order, established the Federal Alcohol Control Administration (FACA) to guide the transition from Prohibition to regulation.35 Roosevelt chose Joseph H. Choate Jr., an East Coast upper-class attorney, to head the FACA. Choate worked in the interest of repeal and assisted in the reestablishment and growth of the liquor industry. He helped the industry, especially the trade associations, to design the market structure most amenable to alcohol businesses and also to the collection of taxes.36 The latter was of particular concern for state and federal governments, the representatives of which met with leaders from the liquor industry to set standards and policies and to develop procedures for efficiently collecting taxes.37 And so it happened that in the months following the end of Prohibition, as states considered various options for liquor control, alcohol businesses came to play a central role in crafting policies.
MAINTAINING THE BOTTLENECK
In the years that followed, distributors (also known as wholesalers) used favorable state policies—specifically three-tier laws—to build a powerful position and protect their government-manufactured slice of the market.38 Whenever attempts to reform or alter the three-tier system have surfaced, distributors have lobbied aggressively to protect their privilege.39 But their activities are not purely reactive. According to David Rehr, the former president of the National Beer Wholesalers Association, today the association is one of the most influential lobbies in America, boasting operations in every state and congressional district.40 It has a presence in every